In a significant development, the Chinese yuan has surpassed the euro to become the world’s second-most used currency in SWIFT trade settlements, underlining China’s efforts to internationalize its currency. SWIFT, the international financial messaging network, reported that as of September 2023, the yuan accounted for 5.8% of international payments, marking the highest share in five years and up from 4.82% in August. The US dollar still remains the dominant currency in global trade, with a share of 84.15% in September.
The euro, which had held the second spot, has now been relegated to third place, with its share decreasing to 5.43% in September from 6.43% in August. Following the yuan and the dollar, the Japanese yen and the Saudi rial are ranked fourth and fifth in international payments, respectively.
China’s growing economic influence globally is attributed to this development, although the yuan’s share in global payments remains small compared to China’s economy. The rise in the yuan’s prominence reflects China’s push to establish the yuan as a global reserve currency, a move that has been underway for years.
The Society for Worldwide Interbank Financial Telecommunication (SWIFT), a Belgian cooperative society that facilitates financial transactions between banks worldwide, traditionally saw the US dollar and the euro dominate its payments, making up more than seven out of ten transactions in 2023.
While the yuan’s growing role in international trade settlements is considered a sign of China’s increasing economic power, it still remains significantly behind the US dollar’s 46.6% share. China’s economic reforms and the establishment of a currency peg have played crucial roles in boosting the yuan’s presence in global trade.
This data from SWIFT is indicative of a shift in the global financial landscape, emphasizing the yuan’s growing prominence and China’s greater involvement in international trade and finance. It underscores China’s ambition to reduce dependence on the dollar-dominated global financial system and promote the use of the yuan in cross-border trade and investments. As China continues to open its financial markets and encourage international use of the yuan, it may well continue to make inroads in global financial transactions in the coming years.
